Current Affair 1:

News:

As part of its over Rs 1.5 lakh crore liquidity injection into the banking system, the Reserve Bank said it will conduct a USD/INR buy-sell swap auction of USD 5 billion (about Rs 43,000 crore) on January 31.

The RBI had announced open market operations (OMO) purchase auctions of government bonds aggregating Rs 60,000 crore, Variable Rate Repo (VRR) auction of Rs 50,000 crore and foreign exchange swap of USD 5 billion.

The swap is in the nature of a simple buy/sell foreign exchange swap from the Reserve Bank side.

A bank shall sell US dollars to the Reserve Bank and simultaneously agree to buy the same amount of US dollars at the end of the swap period.

When the central bank sells dollars, it sucks out an equivalent amount in rupees, thus reducing the rupee liquidity in the system.

These swap operations carry no exchange rate or other market risks as transaction terms are set in advance.

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